Shoe selling shouldn’t come to mind when you hear the name Zappos. While the company does sell shoes and other retail goods, it’s not what it sells that makes Zappos successful. It’s how it sells (that is, what it does for its employees and customers) that makes Zappos what it is today. The company has revenues in excess of $1 billion annually, and in 2009 Amazon acquired Zappos for around $1 billion.
The acquisition by Amazon wasn’t your typical transaction where the founder and team got rich, retired, and you never heard from the company again. Today, nearly four years after the acquisition, Zappos still operates independently from Amazon. In fact, if you take a quick look at the Zappos website, you might think it’s a competitor of Amazon.
To understand Zappos, you need to know CEO Tony Hsieh (pronounced shay). Once you understand him, you’ll understand why Zappos operates the way it does. This blog post will be primarily about Hsieh, his philosophy of company culture, and his recommendations to other entrepreneurs.
A Quick Introduction to Tony Hsieh, CEO and Advocate of Company Culture
“Our number one priority is company culture. Our whole belief is that if you get the culture right, most of the other stuff like delivering great customer service or building a long-term enduring brand will just happen naturally on its own.”
When Hsieh graduated from college, he got a job at Oracle. But after five months, he found that he didn’t care for the corporate culture. He left the company to start LinkExchange.
Hsieh enjoyed working with LinkExchange in the beginning because he would hire his friends or friends of friends, and everyone got along. But the company ran into a problem:
They needed more people, and they had run out of friends to hire.
They didn’t have a lot of experience hiring, but because of business growth, they had to hire someone. Since they didn’t have any friends left to hire, they needed to bring in someone from the outside.
Hsieh says that, while competent people with the right skill set were hired, they weren’t a good culture fit. By the time LinkExchange grew to around 100 employees, the culture was lost. Hsieh says that it was difficult to get out of bed in the morning to go work at his own company.
Soon after hiring that 100th employee, the company was acquired by Microsoft in late 1998. Hsieh left Microsoft before his stock was fully vested.
Next, Hsieh and his business partner co-founded an investment firm called Venture Frogs.
And in 1999, Hsieh invested in an online shoe retailer. Within a year of the investment, he found that he missed building something and decided to join Zappos full-time. Ultimately, he became the CEO.
In 2010, Hsieh’s first book, Delivering Happiness, was published.
This blog post is not intended to be a replacement for Hsieh’s book. It is intended to provide the advice that Hsieh has given publicly during interviews and talks.
Now let’s look into why Zappos isn’t about shoes or clothes but rather customer service.
It’s Not about Shoes
“Zappos is a customer service company that just happens to sell shoes.”
If you hear anything about Zappos from a Zappos customer, chances are it will be positive. There are dozens of stories about their outstanding customer service, including delivering flowers to a customer whose mom passed away and talking to a customer for over 8 hours (a record that now has been broken).
It should come as no surprise that 75% of Zappos orders are from repeat customers.
Hsieh hopes that, down the road, people won’t even realize that Zappos started by selling shoes. They want to be known and remembered as the best customer service and customer experience company. Hsieh envisions Zappos being something like Virgin (dozens of companies), but instead of being “hip and cool [like Virgin]… we just want to be about the very best customer service.”
Hsieh says that he may expand to disrupt other industries, like the airline business, which traditionally has had poor customer service. Zappos doesn’t compete on price. Instead, they focus on providing the best customer service. So if Zappos does expand into other industries, don’t expect them to be the cheapest. Expect them to have the best customer service.
Zappos has been quite successful in providing the best customer service and consistently being one of the best places to work.
Let’s get into what Hsieh recommends for other companies.
Establish Culture Early
In the early days of Zappos, Hsieh and Fred Mossler interviewed every job applicant. This was their way of protecting the culture and ensuring the right people were hired.
Hsieh warns that this won’t scale well. He says that, when he got to about 40 or 50 people, he began to run into time issues.
In the interviews, a candidate would have to pass a normal interview (that is, their skills, experience, competency for the job, etc.), and they also would need to be a person that Hsieh would like to know personally. Hsieh says he would ask himself:
“Is this someone I would choose to hang out with or grab a drink with….if we weren’t in business together? If the answer is no, then we wouldn’t hire them.”
When asked about keeping work and personal life separate, Hsieh says:
“There are companies that focus on work-life separation or work-life balance and at Zappos we really focus on work-life integration and at the end of the day it’s just life…..and especially if you spend so much time at work you better enjoy the time that you’re spending there and people that you’re with….”
He expands on this in his talk at Stanford:
“We want the person to be the same person at home or in the office because what we’ve found is that’s when the great ideas come out, that’s when their creativity shines and that’s when true friendships are formed – not just coworker relationships. When people are in that environment, that’s when the passion comes out and that’s really what’s driven a lot of our growth over the years.”
It’s key that the people who are involved in establishing the culture (typically, the CEO) participate and vet each candidate that comes through, especially for those first few hires. The goal is that, once the company grows, it can build without needing the CEO involved in each hire. This can happen if the CEO hires people who are competent and a culture fit. The theory is that those people that were hired by the CEO will hire people who share the CEO’s vision.
Here’s a diagram:
The Importance of Company Values
When discussing culture, Hsieh frequently brings up the book Good to Great. One of the points in the book is that strong company culture is one of the factors that separates great companies from good, bad, or mediocre ones. On this point, Hsieh says:
“We formalize the definition of our culture into…10 core values at Zappos. And one of the really interesting things I found from the research is that it actually doesn’t matter what your values are, what matters is that you have them and that you align the organization around them. And the power actually comes from the alignment not from the actual values….
“We’re not out there telling people [that they should adopt the Zappos values] and culture because that would actually probably not work in most cases. Our message is more ‘you should figure out what your values are and then align the entire organization around them.’”
It’s important to get everyone on the same page. As the old management adage goes: you can’t have deeply engaged customers without deeply engaged employees.
As Hsieh says, you shouldn’t replicate the Zappos values for your company. Many other companies have their own values that align their employees. Some make their values public, some don’t. Here are some companies that share their values:
- American Heart Association’s values
- Coca Cola’s core values
- Google’s values (aka ten things we know to be true)
- Mahalo’s core values
- Marriott’s core values
- Rackspace’s core values
- Twilio’s core values
- Whole Foods’s core values (you can see them in their stores as well)
- World Wildlife Fund’s core values
“Just figure out what your personal values are then just make those the corporate values.”
Company values also help with hiring, so let’s examine the Zappos way of hiring.
On Hiring the Right People
Zappos’s method of hiring doesn’t appear to have changed much since Hsieh and Mossler were personally interviewing candidates.
They do two sets of interviews with each candidate. The hiring manager and their team do a round of interviews to make sure the person is skilled, and then HR does their interviews to ensure the person is a culture fit. The applicant must pass both interview rounds in order to be hired.
Zappos offers to pick up people up at the airport, drive them to Zappos for a tour, and then drive them to their hotel. Of course, this is only in Las Vegas where their headquarters are located.
And, incidentally, if you’re a job applicant who flies in for an interview, it’s important to be nice to the driver. Hsieh says that they’ll ask the driver if the person was nice. So if an applicant wasn’t nice to the driver who picked them up at the airport, they won’t be hired.
Hsieh says that, no matter how talented an applicant is, if they don’t fit the culture, then they won’t hire them. They must fit into the company values and be talented; otherwise, they won’t get a job at Zappos.
According to Hsieh, they’ll ask at least one question for each value. For example, one of Zappos’s values is “Create fun and a little weirdness.” So they ask the candidate:
“On a scale of 1-10 how weird are you?”
Hsieh says that the number the applicant gives doesn’t matter much. It’s really more a matter of Zappos showing that they recognize and celebrate each person’s individuality.
Fire Those that Don’t Fit the Culture – No Matter How Talented
“We’ve actually passed on a lot of smart, talented people that we know can make an immediate impact on our top or bottom line but if they’re not good for our culture then we won’t hire them for that reason alone.
“The reverse is true too. Even if a person is great at their job, even if they’re a superstar at their job if they’re bad for our culture we’ll fire them for that reason alone. And performance reviews are 50% based on whether you’re living and inspiring the Zappos culture in others.”
Clearly, values and culture are really important to Zappos. A great culture is so essential that they’ll fire the best person if they aren’t aligned with it.
Forget Advertising – Let Customers Spread the Word
As mentioned, around 75% of Zappos orders are from repeat customers.
So how much do they spend on advertising? Not much, according to Hsieh. They rely on customers spreading the word about their great service.
“Our whole philosophy became ‘let’s take most of the money we would’ve spent on paid advertising and paid marketing and instead of spending it on that invest it in the customer experience/customer service and then let our customers do the marketing for us through word of mouth’ and that became the whole business model.”
This minimal marketing budget has clearly served them well. Zappos likes to slash their marketing budget and put that money into customer service. Amazon, on the other hand, slashes their marketing budget and works on keeping prices down. It would be optimal to focus on great customer service, low prices, and marketing the product, but not all companies have the money for it.
Marketing can get the word out about your product, but no opinion is formed until a customer places an order. If a person hears about a product from a friend (and it’s good), that accomplishes more than marketing. There are plenty of brands that can advertise a lot, but if the customer experience is poor, they won’t be coming back.
So while marketing gets the word out about your product, word of mouth gets the word out and shines a positive light on your company at the same time. This is one of the reasons word of mouth is much better than typical advertising.
Some Advice on Call Centers
As of December 2012, Zappos’s longest call was 10 hours and 29 minutes long. Traditional call centers use a metric called average handle time to gauge their efficiency. Hsieh says that Zappos is more focused on creating great customer service.
He explains how Zappos operates differently from other call centers:
“I think the main thing is just trust [the customer service reps] and let them make their own decisions. Most call centers are set up by policies and so the actual person that’s answering the phone doesn’t really have the ability to do anything. If you…call most customer service places, if you ask for anything that’s not normal they have to talk to a supervisor or just say ‘oh our policy doesn’t allow that’ and whatever. So we generally try to stay away from policies, we just ask our reps to do whatever they feel is the right thing to do for the customer and the company. And that’s actually really uncomfortable for a lot of reps that come from other call centers. We kind of have to untrain their bad habits.
“But I think [customer service reps] are generally not happy because they don’t have control over the situation whereas Zappos…there’s really nothing that a rep can’t do so there’s no reason to ever escalate.”
Zappos likes to build customer service through the telephone. He explains:
“For us it’s about trying to build a lifelong relationship with each customer and doing it through the telephone…at a lot of marketing or advertising conferences there’s discussions about consumers being bombarded with thousands of marketing messages every day. ‘How to get your brand to stand out – how to get your messages to stand out’. And for us, like, forget the Super Bowl, forget whatever the latest social media fads are. Like telephone – undivided attention for 5-10 minutes and if you view that through a branding lens, like the longest – almost the equivalent of an infomercial that people are paying attention to.”
If you want to provide great customer service, it’s probably best to not go by the book. Hsieh says they didn’t really know much about call centers and were more focused on providing great customer service. It’s a good thing he didn’t know, not that he would have implemented the industry standard policies.
Pay New Employees to Quit
Every new Zappos employee goes through the same four week training process. There, they learn the company strategy, the culture and why it’s important, and the customer service philosophy. They also spend two weeks in the call center. During the four weeks, Zappos can see if they really care about the customers.
At some point during the training, Zappos offers $4,000 to the new employee to quit and walk away from the company. Hsieh says they don’t want people who are there for a paycheck, and they don’t want people who feel like they are trapped. He says that the percentage of people who take the check is 2-3%.
Hsieh says that when new employees turn down the money, they turn out to be much more passionate and engaged because they realize that it’s a place they really want to be and contribute.
So, ask yourself: what do you do to ensure employees aren’t just working at your company for a paycheck but actually like working there and believe in the mission and values?
Zappos is all about happiness – happy employees and happy customers. Hsieh himself has studied a lot about what makes people happy. He says these four attributes are key:
- Perceived Control – People don’t want to feel like they’ve lost control
- Perceived Progress – People need to feel like they’re making progress
- Connectedness – Having strong social ties
- Vision/Meaning – Being part of something bigger than yourself
He also recommends the book Happiness Hypothesis.
- If a customer calls for a product and Zappos does not have the product in stock, they recommend a competitor who has it. Hsieh says that, while Zappos will lose the sale, in the long run it’s best for Zappos because the customer appreciates the help and tells their friends the story. It creates word of mouth.
- Hsieh says: “If [the CEO] has to be the one making all the decisions, that just doesn’t scale. That’s how companies get more bureaucratic as they get bigger.” Decisions need to come from the front lines – the people who are closest to the customers. Zappos lets customer service reps decide what’s best for the customers instead of having specific policies for each case. That trust can go a long way with the customer service reps.
- Don’t let HR and Legal make the decisions. Tell them they’re great for some things, but, ultimately, it’s the manager’s decision. Limit their power in an organization. They can make things more bureaucratic if they aren’t contained.
- Hsieh says it’s important that managers and supervisors get to know their employees on a personal basis. He says they’ve tried this at Zappos, and the results have been better communication between employees, relationships are better, people are willing to do favors for each other, and higher levels of trust are established. He says the same applies to the vendor and company relationship.
A few more quotes from Hsieh:
On companies being themselves:
“We’re not out there saying other companies should adapt the Zappos culture. We’re just saying….if you want to build a company for the long-term you should have values and a strong culture and in most cases probably not the same values as Zappos. The research has shown that the power comes from the alignment, by having values and a point of view and beliefs and passion for whatever it is that you stand for.”
On business karma:
“If you really just think about how to make customers happy and how to make employees happy, that actually in today’s world ends up being good for business.”
“People don’t leave companies they leave their managers.”
On the relationship between branding and culture:
“Our belief is that a company’s culture and a company’s brand are just two sides of the same coin. The brand is just a lagging indicator of the culture.”
On customer service:
“If we’re serious about building our brand to be about the very best customer service and customer experience; then customer service shouldn’t just be a department – it should be the entire company.”
On what makes the best businesses:
“The best businesses are really ones that can combine passion, profits, and purpose.”
When referring to board members and investors, Hsieh says:
“If they’re not aligned with the vision and strategy of getting there…then that misalignment can cause issues.”
Have anything to add about Zappos or Hsieh? Have you ordered from them? What was the service like?
I’d like to hear your feedback in the comments!
About the Author: Zach Bulygo is a blogger for KISSmetrics, you can find him on Twitter here.